[Federal Register Volume 89, Number 30 (Tuesday, February 13, 2024)]
[Notices]
[Pages 10129-10137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02859]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99490; File No. SR-CboeEDGX-2024-009]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Amend the Definition of Retail 
Order, and Codify Interpretations and Policies Regarding Permissible 
Uses of Algorithms by RMOs

February 7, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 25, 2024, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposal to (i) amend the definition of ``Retail Order'' as defined by 
Exchange Rule 11.21(a)(2); (ii) codify proposed Interpretation and 
Policy. 01, which describes the meaning of the term, ``retail 
investor,'' as referenced in proposed Rule 11.21(a)(2); (iii) codify 
proposed Interpretation and Policy .02, which describes the meaning of 
the term, ``natural person,'' as referenced in proposed Rule 
11.21(a)(2); (iv) codify proposed Interpretation and Policy .03, which 
describes acceptable uses of algorithms or other computerized 
methodology by Retail Member Organizations; and (v) codify proposed 
Interpretation and Policy .04 which explains that Rule 11.21(a)(2)'s 
provision preventing the terms of an order with respect to price is not 
intended to prevent a Retail Member Organization from changing the 
terms of the order to ensure a better execution experience for a retail 
investor. The text of the proposed rule change is provided in Exhibit 
5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/

[[Page 10130]]

options/regulation/rule_filings/edgx/), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule filing is to (i) amend the definition of 
``Retail Order'' as defined by Exchange Rule 11.21(a)(2); (ii) codify 
proposed Interpretation and Policy. 01, which describes the meaning of 
the term, ``retail investor,'' as referenced in proposed Rule 
11.21(a)(2); (iii) codify proposed Interpretation and Policy .02, which 
describes the meaning of the term, ``natural person,'' as referenced in 
proposed Rule 11.21(a)(2); (iv) codify proposed Interpretation and 
Policy .03, which describes acceptable uses of algorithms or other 
computerized methodology by Retail Member Organizations; and (v) codify 
proposed Interpretation and Policy .04 which explains that Rule 
11.21(a)(2)'s provision preventing the terms of an order with respect 
to price is not intended to prevent a Retail Member Organization from 
changing the terms of the order to ensure a better execution experience 
for a retail investor.
    The Exchange, along with its affiliate exchanges Cboe BYX Exchange, 
Inc. (``BYX''), Cboe BZX Exchange, Inc. (``BZX''), and Cboe EDGA 
Exchange, Inc. (``EDGA''), believes that retail investors are a key 
part of the trading ecosystem, and as such, has designed products and 
programs to execute retail orders quickly, with high execution quality 
and at a low-cost, with added pricing incentives. For instance, 
targeted retail order types on EDGX \3\ and BYX,\4\ execute both 
marketable and non-marketable retail orders with price improvement, and 
enhanced speed and fill rates. Additionally, both EDGX and BYX offer 
retail-only pricing incentives for low cost remove and premium rebates. 
EDGX also offers Retail Member Organizations (``RMO'') \5\ discounts on 
port fees and market data, and retail tiers give growing retail firms 
additional rebates.
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    \3\ EDGX's Retail Priority program seeks to enhanced execution 
quality for individual investors who trade U.S. equities on EDGX. 
Retail Priority offers a distinct allocation model, which differs 
from the traditional time-based allocation model used by most U.S. 
equities market centers that allocate trades to orders that arrive 
first in time at each price point. Retail Priority focuses on 
improving execution quality and trading outcomes for individual 
investors, and the firms facilitating their orders, by reducing 
their time to execution. Under Retail Priority, individual 
investors' displayed limit orders will post at the front of the 
order queue for same-priced orders submitted on EDGX.
    \4\ Orders designated by a Retail Member Organization as 
``Retail Orders'' (defined infra) are eligible for participation in 
BYX's Retail Price Improvement Program. Through the Retail Price 
Improvement Program, any BYX Member may input Retail Price Improving 
(RPI) orders on the BYX order book that will offer price improvement 
on $.001 increments to RMOs that enter a Retail Order. In addition 
to the price improvement opportunities, Retail Orders that interact 
with price improving orders receive an enhanced rebate on BYX. See 
generally ``Cboe Retail Price Improvement'' available at: https://www.cboe.com/us/equities/trading/offerings/retail_price_improvement/See generally, ``BYX Retail Price Improvement (RPI) Program'' 
available at: https://cdn.cboe.com/resources/release_notes/2012/BATS-Introduces-Retail-Price-Improvement-Program.pdf.
    \5\ The term, Retail Member Organization or RMO, means ``a 
Member (or a division thereof) that has been approved by the 
Exchange under this Rule to submit Retail Orders.'' See Rule 
11.21(a)(1), definition of, ``Retail Member Organization''.''
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Retail Order Definition
    As currently defined in Rule 11.21(a)(2), a ``Retail Order'' is an 
agency or riskless principal order that meets the criteria of FINRA 
Rule 5320.03 \6\ that originates from a natural person and is submitted 
to the Exchange by a RMO, provided that no change is made to the terms 
of the order with respect to price or side of the order and the order 
does not originate from a trading algorithm or any other computerized 
methodology.
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    \6\ FINRA Rule 5320.03 provides for a Riskless Principal 
Exception. See FINRA Rule 5320, Prohibition Against Trading Ahead of 
Customer Orders, available at: https://www.finra.org/rules-guidance/rulebooks/finra-rules/5320.
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    The Exchange has received Member feedback,\7\ however, that it is 
unclear whether Rule 11.21 permits the use of algorithms or other 
computerized methodologies (hereinafter, collectively referred to as 
``algorithms'') when submitting individual retail investors' orders to 
the Exchange.\8\ The impact of the rule's ambiguity is twofold: first, 
while Members may route orders entered by retail investors to the 
Exchange for execution, they are doing so as non-RMOs and without 
designating such orders as Retail Orders; second, potential new Members 
considering registering as RMOs may be discouraged doing from so. In 
both cases, the ambiguity of the Exchange's current definition is 
discouraging the routing of retail order flow to the Exchange and 
preventing individual investors from receiving the benefits provided to 
Retail Orders executed on the Exchange.
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    \7\ The Exchange has spoken with various current and prospective 
Members, ranging from smaller, regional broker-dealers to larger, 
bulge bracket broker-dealers, that are responsible for handling and 
routing retail orders for execution.
    \8\ The Exchange notes that this is not a novel question and 
that this issue was initially raised by SIFMA in its comment letter 
to the New York Stock Exchange's Retail Liquidity Program rule 
filing, in which SIFMA noted that a broad prohibition on algorithmic 
and computerized methodologies could be read to mean only orders 
submitted via phone may be considered Retail Orders, or that even 
orders entered through an online broker by an actual retail customer 
would not qualify. See SIFMA Comment Letter (March 23, 2012), to 
Securities Exchange Act Release No. 34-66346 (File No. SR-NYSE-2011-
55 and File No. SR-NYSEAmex-2011-84) (``Retail Liquidity Program'').
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    The Exchange now seeks to amend the definition of Retail Order to 
clarify for Members, including potential new Members, that the use of 
an algorithm to submit orders to the Exchange on behalf of a retail 
investor, does not automatically preclude an RMO from designating such 
orders as, ``Retail Orders.'' Specifically, use of an algorithm to 
submit a Retail Order to the Exchange is permissible provided that the 
order, or investment criteria for the order (discussed infra) 
originates from a natural person, such as the investor him/herself, or 
a natural person on behalf of a retail investor (e.g., a Financial 
Advisor (``FA''), or trader), and such order is submitted to the 
Exchange by an RMO. Additionally, except as described in proposed 
Interpretation and Policy .03 (discussed infra), no change to the terms 
of the order with respect to price or side, may be made.
    The Exchange believes that the proposed definition could encourage 
additional Members to become RMOs and route their Retail Orders to the 
Exchange. If more Members choose to become RMOs, the Exchange believes 
there will be additional opportunities to interact with retail order 
flow, which is likely to incentivize more retail liquidity provision, 
as it is generally considered preferable to trade with retail orders 
than with orders of professional investors that are typically more 
informed regarding short-term

[[Page 10131]]

price movements.\9\ By amending the Retail Order definition, RMOs and 
their retail customers will have the potential to receive enhanced 
execution quality on EDGX--a transparent, well-regulated, public 
exchange--receive low cost remove fees and enhanced rebates, as well as 
be eligible to participate in the Exchange's Retail Priority \10\ 
offering.
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    \9\ Indeed, even the Commission noted ``the markets generally 
distinguish between individual retail investors, whose orders are 
considered desirable by liquidity providers because such retail 
investors are presumed on average to be less informed about short-
term price movements, and professional traders, whose orders are 
presumed on average to be more informed.'' See Securities Exchange 
Act Release No. 34-68303 (November 27, 2012), 77 FR 71652 (December 
3, 2012) (SR-BYX-2012-019) (``Order Granting Approval to Proposed 
Rule Change, as Modified by Amendment No. 2, to Adopt a Retail Price 
Improvement Program'').
    \10\ Supra note 3. See also Securities Exchange Act Release No. 
34-87200 (October 2, 2019), 84 FR 53788 (October 8, 2019) (SR-
CboeEDGX-2019-012) (``Order Granting Approval of Proposed Rule 
Change, as modified by Amendment No. 1, to Introduce Retail 
Priority'').
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    The Exchange believes that the proposed amendments are merely a 
codification of how retail trading occurs in today's markets and helps 
to ensure that retail customers are not inadvertently excluded from 
enhanced execution quality simply because they utilize automated 
trading solutions widely utilized by other market participants that 
have been developed since the current definition was added to the EDGX 
rulebook. As noted in the Staff Report on Algorithmic Trading in U.S. 
Capital Markets, the current markets for secondary trading in NMS 
stocks is predominantly electronic, with most of the trading lifecycle, 
including order generation, routing, and execution, being fully 
automated.\11\ Indeed, both retail and institutional investors utilize 
algorithms to actively make investment and trading decisions.\12\ 
Additionally, some specialized brokers provide individual retail 
investors with sophisticated broker algorithms, or allow them to create 
their own algorithms,\13\ as well as utilize auto-investing technology 
that trades for retail customers based on how much money a retail 
customer wishes to invest, and their preferred investment horizon.\14\ 
Given the prevalent use of trading algorithms in the securities 
markets, the Exchange believes it necessary to modify the definition of 
Retail Order to align Exchange rules with current market practice, and 
to provide clarity to Members and potential new Members regarding the 
definition of Retail Order.
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    \11\ See ``Staff Report on Algorithmic Trading in U.S. Capital 
Markets'' (August 5, 2020), available at https://www.sec.gov/tm/reports-and-publications/special-studies/algo_trading_report_2020.
    \12\ Id.
    \13\ Id.
    \14\ See generally Betterment(copyright), Automated Investing, 
available at: https://www.betterment.com/investing 
(Betterment(copyright) provides retail customers access to 
technology that automatically invests in the market based on the 
retail customer's available funds and stated investment period) 
(``Automated Technology is how we make investing easier, better, and 
more accessible''); see also (DriveWealth,(copyright) LLC, Robo, 
available at: https://www.drivewealth.com/solutions/robo 
(``DriveWealth's(copyright) technology enables our partners to 
design cutting-edge robo-investing experiences for your customers . 
. . or you can empower people to make their own investment decisions 
with robo-advisory capability.'')
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Proposed Interpretation and Policy .01
    The Exchange also seeks to adopt proposed Interpretation and Policy 
.01, which seeks to describe the meaning of the term, ``retail 
investor,'' which is referenced in proposed Rule 11.21(a)(2). To ensure 
that orders from only bona fide retail investors may qualify as Retail 
Orders, the Exchange believes it important to first specify what type 
of investor is considered a retail investor for the purposes of Rule 
11.21. Specifically, a retail investor is intended to refer to a non-
professional, individual investor that invests money in their own 
account, held at a brokerage firm. A retail investor may also refer to 
an account held in corporate form (e.g., corporation, or limited 
liability company) that has been established for the benefit of an 
individual or group of related family members (e.g., the legal 
representative for a family office).\15\ Furthermore, the investment 
goals of a retail investor are mainly saving for retirement and/or 
education, generating income, or growing wealth over the long-term. A 
retail investor may trade directly on his or her own behalf (e.g., 
self-directed online brokerage account), utilize online investing 
platforms that employ software algorithms to create and enters orders, 
and manage investment portfolios based on an investor's investment 
criteria (e.g., ``robo-advisors''), or utilize a FA who makes 
investment decisions and enters orders on the retail investor's behalf.
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    \15\ Family offices are ``entities established by wealthy 
families to manage their wealth and provide other services to family 
members, such as tax and estate planning services. See generally 
Small Entity Compliance Guide, ``Family Office'', available at: 
https://www.sec.gov/rules/final/2011/ia-3220-secg.htm.
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    The Exchange believes that this description will help to make clear 
to investors whether their trading practices and investment goals are 
consistent with the Exchange's view of what constitutes retail trading 
activity. Additionally, this description should help to make clear that 
Retail Orders can also include orders entered on behalf of entities 
organized for the benefit of retail investors, and are not strictly 
limited to humans--e.g., orders entered by a legal representative for a 
family office may be considered Retail Orders as they ultimately 
benefit a retail investor.
    Conversely, the term retail investor is not intended to include 
individual investors that engage in more professional trading 
strategies designed to profit from bid-ask spreads, short-term price 
movements, and arbitrage, or in trading behavior where multiple buy and 
sell orders are entered over a short period of time based on market 
conditions.\16\ While the Exchange acknowledges that certain industry 
offerings may provide individual investors the tools to trade in such a 
manner, such trading strategies are not considered those of a retail 
investor for the purposes of Rule 11.21.
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    \16\ The Exchange notes that the items noted herein are not 
intended to be an exhaustive list of restricted trading strategies. 
Indeed, what is noteworthy is that such trading activity is not 
representative of the type of activity an ``ordinary'' investor 
would engage in. Accordingly, while certain trading strategies may 
not be explicitly noted, trading representative of more 
sophisticated investors would similarly be prohibited for the 
purposes of Rule 11.21.
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Proposed Interpretation and Policy .02
    The Exchange also seeks to adopt proposed Interpretation and Policy 
.02, which seeks to describe the meaning of the term, ``natural 
person,'' which is referenced in proposed Rule 11.21(a)(2). 
Specifically, for the purposes of Rule 11.21, the Exchange intends for 
the term ``natural person'' to refer to a human who enters an order or 
investment criteria for an order (discussed infra). This individual may 
be the retail investor him/herself, or a natural person entering the 
order on behalf of a retail investor (e.g., an FA or trader).
    The Exchange believes that this clarification will help to ensure 
that only bona fide retail orders are submitted to the Exchange as 
Retail Orders by making clear that orders generated automatically by an 
algorithm, without human intervention, shall not be considered Retail 
Orders. For the sake of clarity, while the proposed definition of 
Retail Order requires an order to be entered by a human, a retail 
investor may utilize an online brokerage platform that employs 
algorithms to create and manage orders based on investment criteria 
(discussed infra) entered by a natural person. The Exchange believes 
that such orders still require human intervention, and the initial 
impetus to trade was not generated by an algorithm. In other words, the 
use of an algorithm comes

[[Page 10132]]

only after investment criteria or order is entered by a human.
    Additionally, the Exchange believes that proposed Interpretation 
and Policy .02 will place professional investors and trading firms on 
notice that orders generated from algorithms, without human 
intervention, that are entered and routed to the Exchange for 
professional trading purposes such as market making, high-frequency 
trading, and proprietary trading, etc., shall not satisfy the 
definition of Retail Order.\17\ While certain industry offerings may 
provide individual investors sophisticated tools enabling them to trade 
in a more automated fashion, the Exchange does not believe that such 
trading strategies and corresponding orders should be considered Retail 
Orders for the purposes of Rule 11.21.
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    \17\ Id.
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Proposed Interpretation and Policy .03
    Importantly, the Exchange seeks to ensure that only bona fide 
retail flow is designated as a Retail Order and does not intend for 
professional investors and professional trading firms to avail 
themselves of the benefits provided to RMOs by the Exchange. Therefore, 
the Exchange also seeks adopt Interpretation and Policy .03 to describe 
how an RMO can permissibly utilize an algorithm when entering Retail 
Orders onto the Exchange.
    The Exchange believes that an RMO can utilize an algorithm to enter 
individual investors' orders onto the Exchange, and permissibly 
designate such orders as Retail Orders, provided the order or 
investment criteria used to generate an order, originates from a 
natural person, such as the retail investor him/herself, or a natural 
person on behalf of a retail investor (e.g., an FA or trader), and is 
submitted to the Exchange for execution by an RMO. Examples of 
acceptable uses of algorithms by an RMO include, but are not limited 
to: a smart order router to route the Retail Order to the Exchange for 
execution; a smart order router to assess trading venues for the best 
priced quotation and liquidity prior to routing the Retail Order to the 
Exchange; an order management system, smart order router, or other 
functionality to change the terms an order to seek a better execution 
price; use of an order management system to assist with portfolio 
rebalancing and asset reallocation for the accounts of retail 
investors; and a retail investor's use of automated investment 
management tools offered by RMOs to manage their assets based on their 
goals and risk tolerance (i.e. robo-advisory solutions).
    One example of an acceptable use of an algorithm by an RMO includes 
the use of a smart order router to route a Retail Order to the Exchange 
for execution. Here, an RMO may permissibly use a smart order router to 
send an order to the Exchange that: (i) an employee of the RMO (e.g., 
an FA or trader) entered into their trading system on behalf of a 
retail investor, (ii) was entered by the retail investor him/herself 
and is being managed by the RMO algorithmically (e.g., an order entered 
by an individual investor via a self-directed brokerage account), (iii) 
was created by the RMO's automated investment algorithm that creates 
orders based on investment criteria entered into a brokerage platform 
by a retail investor (i.e., robo-advisory solutions), or (iv) the RMO 
is managing on behalf of their broker-dealer customer that manages 
retail flow through the same channels described in (i)-(iii). In each 
use case, such algorithmic usage is permissible because the orders or 
investment criteria were not generated without intervention by a 
natural person and the algorithms are only used after the orders or 
investment criteria have been entered.
    Another permissible use of an algorithm by an RMO includes the use 
of a smart order router to assess trading venues for the best priced 
quotation and liquidity prior to routing the Retail Order entered 
through the channels described in (i)-(iv) above. Here, there is no 
automated generation of an order by an algorithm without intervention 
by a natural person--whether by order entry or entry of investment 
criteria (i.e., the robo-advisory scenario noted above, and discussed 
further infra). Rather, the RMO is using algorithmic technology post-
order entry to assess the best market for the retail investor's orders, 
which is consistent with an RMO's duty to provide best execution \18\ 
and integral to providing optimal execution quality.
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    \18\ See. FINRA Rule 5310, Best Execution and Interpositioning, 
available at: https://www.finra.org/rules-guidance/guidance/reports/2021-finras-examination-and-risk-monitoring-program/best-execution. 
FINRA Rule 5310 requires, amongst other things, that in any 
transaction for or with a customer or a customer of another broker-
dealer, a FINRA member and persons associated with a FINRA member 
shall use reasonable diligence to ascertain the best market for the 
subject security and buy or sell in such market so that the 
resultant price to the customer is favorable as possible under 
prevailing market conditions.
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    An RMO's use of an order management system, smart order router, or 
other functionality to change the terms an order to seek a better 
execution price, may also be a permissible use of an algorithm. As 
discussed further below, an RMO may utilize such technology to monitor 
and manage orders previously routed to the Exchange on behalf of a 
retail investor to help work the order towards execution, by amending 
an order's limit price, or changing the size of an order. Here, an 
order is not being automatically generated by an algorithm without 
intervention by a natural person. Rather, the RMO is utilizing trading 
technology post-order entry by a natural person to help achieve best 
execution for the retail investors' orders, and to help achieve optimal 
execution quality.
    Moreover, use of an order management system to assist with 
portfolio rebalancing and asset reallocation for the accounts of retail 
investors may be a permissible use of an algorithm by an RMO. Here, a 
natural person employed by an RMO, such as an FA, often manages the 
accounts of multiple retail investors. In managing the assets of these 
accounts, FAs may often utilize order management systems, or other 
software that automatically rebalances their customers' equity security 
allocations, and simultaneously generates a pro-rata buy or sell order 
to execute the change in position for these accounts in order to 
eliminate the need to manually enter multiple buy and/or sell orders 
across multiple accounts. Here, an FA is utilizing an order management 
system to help manage orders they are entering on behalf of retail 
investors. While the generation of the order may be based on automated 
actions from the order management system, the creation of the order is 
originating from the intervention of a natural person, the FA, in a 
manner consistent with the FA's understanding of her/his clients' 
investment criteria.
    Finally, the use of robo-advisory solutions offered by RMOs to 
retail investors to help them manage their personal assets based on 
their investment criteria (discussed infra) may also be an acceptable 
use of algorithms. As discussed below, robo-advisory solutions involve 
the algorithmic creation and management of orders based on investment 
criteria entered into the trading tool by a natural person. Despite the 
automated creation of an order by the RMO's algorithm, the Exchange 
believes that the algorithms offered by robo-advisory solutions are 
only utilized after a natural person enters his/her investment criteria 
and provides certain guidelines for his/her account. While robo-
advisory solutions represent a relatively new type of trading platform 
available to retail investors, these platforms are investing solutions 
widely used by retail investors and offered by numerous brokerage

[[Page 10133]]

firms. Given the popularity of robo-advisory solutions, to exclude such 
automated trading technology would be ignore the reality of how many 
retail investors participate in today's markets.
    Conversely, orders automatically generated and submitted to the 
Exchange by an algorithm based on factors such as market conditions and 
price movements, which do not originate from a manual entry of order 
terms or investment criteria by a natural person, shall not be 
considered Retail Orders. Examples of such algorithms include, but are 
not limited to, algorithms developed for market-making, high-frequency 
trading, liquidity provision, arbitrage, hedging, or proprietary 
trading. In addition to the fact that such orders do not typically 
originate from a natural person, entities engaging in such trading 
strategies are not typically doing so for the account of a retail 
investor. While retail investors may be offered certain technologies 
that would permit them to engage in the trading strategies mentioned 
above, this activity is generally outside the scope of the investment 
goals of a traditional retail investor (discussed supra) and should be 
excluded from the type of permissible algorithm usage for Retail 
Orders.
Proposed Interpretation and Policy .04
    The Exchange believes that proposed Rule 11.21(a)(2)'s provisions 
prohibiting the changing of a Retail Order's price or side may 
discourage the submission of Retail Orders to the Exchange, as it may 
be unclear how an RMO may handle a Retail Order it submitted to the 
Exchange algorithmically. As such, the Exchange seeks to codify 
Interpretation and Policy .04 to mitigate any confusion that RMOs may 
have in this regard. Specifically, despite proposed Rule 11.21(a)(2)'s 
provision preventing the changing of the price or side of a Retail 
Order, Interpretation and Policy .04 would provide that post-order 
entry an RMO may algorithmically amend the Retail Order's price and/or 
size provided such amendments are made for the purposes of seeking 
better execution, enhance execution quality, or minimize market impact.
    Accordingly, an RMO may utilize an algorithm to add a limit price 
to an unpriced order, amend an order's price and/or size to manage an 
order's marketability and/or mitigate the risk of receiving executions 
at aberrant prices, or adjust the price and/or size of an order as 
market conditions or trading objectives may dictate. For example, an 
RMO that receives unpriced orders from its retail clients may choose to 
assign limit prices to such orders to prevent unintended market impact 
and to prevent such orders from executing at undesirable price levels, 
or to ensure an order's limit price falls within the Limit Up/Limit 
Down (``LULD'') \19\ bands. In this regard, Interpretation and Policy 
.04 will help to ensure that an order submitted by a retail investor 
does not lose its standing as a Retail Order simply because the RMO 
that submitted the order assigned limit prices to the orders to help 
ensure better priced executions.
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    \19\ The Limit Up/Limit Down Plan is designed to prevent trades 
in NMS Stocks from occurring outside specified price bands, which 
are set at a percentage level above and below the average reference 
price of a security over the preceding five-minute period. The 
percentage level is determined by a security's designation as a Tier 
1 or Tier 2 security. Tier 1 comprises all securities in the S&P 
500, the Russell 1000 and select Exchange Traded Products (ETPs). 
Tier 2 comprises all other NMS securities, except for rights and 
warrants, which are specifically excluded from coverage. The Plan 
applies during regular trading hours of 9:30 a.m. ET-4:00 p.m. ET.
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    Importantly, such order amendments may be made manually by a 
natural person who entered the order on behalf of the retail investor 
(e.g., an RMO's trader, an FA, or a retail investor via their online 
brokerage account), by the smart order router used by the RMO to route 
the order to the Exchange, and/or by the algorithm utilized by the RMO 
to manage the order's execution. While the changing of an order's price 
or size by an algorithm or smart order router may be automated, the 
Exchange believes such behavior is permissible provided the RMO is 
making such amendments are made to satisfy their best execution 
obligations, prevent outsized market impact due to an order's super-
marketable limit price, or to ensure an order's marketable limit price 
falls within the Limit Up/Limit Down bands.
Retail Segments That Will Benefit From the Proposed Amendments
    The Exchange believes that the proposed definition may encourage 
financial advisors from wealth management firms that are RMOs to send 
their Retail Orders to the Exchange, as these RMOs will have additional 
certainty as to how algorithms may be used in the submission of Retail 
Orders. When managing their retail customers' portfolios, even 
financial advisors rely on automated technologies such as trading 
algorithms and automated smart order routing solutions to assist them 
with efficiently managing and entering orders for their various 
customer accounts.\20\ Yet, in speaking with some of the Exchange's 
Members, they are hesitant to allow send their FAs retail order flow to 
the Exchange given the ambiguity of the current definition of Retail 
Order. In this regard, the Exchange believes that the proposed rule 
change will provide further guidance to these Members and encourage 
them to route their Retail Orders to the Exchange where they are 
eligible to receive order priority and enhanced execution quality via 
EDGX's Retail Priority mechanism as well as benefit from retail-only 
pricing incentives. Certainly, orders originating from FAs who are 
responsible for managing individuals' securities accounts are 
quintessentially retail, and the qualification of such orders as Retail 
Orders should not be in doubt simply because FAs may elect to utilize 
automated trading technologies currently utilized by a broad array of 
other market participants.
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    \20\ For instance, many brokerage firms offer investment 
advisory programs where FAs manage their clients' portfolios based 
on their clients' investment criteria and risk profiles. In managing 
these accounts, FAs may determine that a certain equity security has 
reached a price point triggering the buying (selling) of such 
security across multiple client accounts. Rather than individually 
buying (selling) the security multiple times for each client 
account, an FA may instead choose to manage the accounts through 
automated technology, such as an order management system, trading 
algorithm, and smart order router. The Exchange believes that the 
Retail Order definition should include such activity, as the order 
activity is being entered by a natural person (i.e., the FA), on 
behalf of natural persons (i.e., retail investors).
---------------------------------------------------------------------------

    Additionally, the proposed rule may also make clear to specialized 
brokers and traditional brokerage firms \21\ that provide retail 
investors with automated trading solutions, that orders from retail 
investors may qualify as Retail Orders. By way of background, automated 
trading solutions generally begin by providing retail investors with a 
questionnaire that asks them for investment criteria, such as personal 
information regarding their age, investing time horizon, investing 
goals, and a target dollar amount to guide asset allocation. From 
there, a retail investor's investments are initially allocated and 
subsequently re-allocated according to pre-determined models developed 
by the brokerage firm. Typically, automated rebalancing may also occur

[[Page 10134]]

when a retail investor adds or withdraws money from the account, or an 
allocation percentage drifts from the retail investor's desired range. 
Retail investors utilizing such services typically complete a periodic 
review to confirm that their portfolio is still aligned with their 
investment goals, and when their portfolios are reallocated, they must 
accept the changes before an allocation is executed. In this use case, 
natural persons (i.e., retail customers) are directly entering their 
investment criteria into a brokerage firm's platform, and algorithms 
and trading models automatically generate orders based on such data 
after the retail customer provides the criteria from which an order can 
be generated. If such orders do not qualify as Retail Orders, it would 
be hard to contemplate what types of orders do satisfy such a 
definition.
---------------------------------------------------------------------------

    \21\ For example, Merrill Guided Investing offers retail 
investors an automated investing tool. See Merrill Guided Investing, 
available at: https://merrilledge.com/investing/merrill-guided-investing; see also Fidelity Go[supreg], which provides retail 
investors with technology to help automate investing based on 
information retail investors provide about themselves and their 
financial institution, available at: https://www.fidelity.com/managed-accounts/fidelity-go/overview; see also Schwab Intelligent 
Portfolios[supreg], which offers retail investors automated 
investing through a robo-advisor that helps build and manage retail 
investors' portfolios, available at: https://intelligent.schwab.com/.
---------------------------------------------------------------------------

Existing Framework Ensuring Only Bona Fide Retail Orders Satisfy Rule 
11.21.
    The Exchange notes that it already has in place robust protections 
designed to ensure only bona fide retail orders are designated as 
Retail Orders. The proposed amendments will not eliminate or diminish 
the strength of the existing protections. Rather, the proposed 
amendments will augment the Exchange's existing RMO framework.
    Currently, Rule 11.21(b)(1)-(6) sets forth an objective process by 
which a Member organization applies to become a RMO. First, to qualify 
as a Retail Member Organization, a Member must conduct a retail routing 
business or route retail orders on behalf of another broker-dealer.\22\ 
To become an RMO, a Member is required to submit an application 
form,\23\ supporting documentation (e.g., marketing literature, website 
screenshots, and other publicly disclosed materials) confirming that 
the applicant's order flow would meet the requirements of the Retail 
Order definition,\24\ and an attestation \25\ in a form prescribed by 
the Exchange, that substantially all orders submitted as Retail Orders 
will qualify as such under the Rule.\26\ After submission of these 
materials, various Exchange functions, including legal and operations, 
review the application to assess whether the applicant's order flow 
complies with Exchange rules.\27\ Applicants are then notified, in 
writing, of the Exchange's decision.\28\
---------------------------------------------------------------------------

    \22\ See Rule 11.21(b)(1).
    \23\ See Rule 11.21(b)(2)(A).
    \24\ See Rule 11.21(b)(2)(B).
    \25\ See section, ``Retail Member Organization--Broker-Dealer 
Customer Agreement'', and ``Broker-Dealer Customer Annual 
Attestation'' of ``Cboe EDGX Exchange, Inc., Retail Member 
Organization Application'', available at: https://cdn.cboe.com/resources/membership/EDGX_Retail_Member_Organization_Application.pdf.
    \26\ See Rule 11.21(b)(2)(C).
    \27\ See Rule 11.21(b)(3).
    \28\ Id.
---------------------------------------------------------------------------

    Furthermore, all RMOs must have in place policies and procedures 
reasonably designed to ensure that it will only designate orders as 
Retail Orders if all requirements of a Retail Order are met.\29\ These 
policies and procedures must require the Member to (i) exercise due 
diligence before entering a Retail Order to assure that entry as a 
Retail Order is in compliance with the requirements of the Rule, and 
(ii) monitor whether orders entered as Retail Orders meet the 
applicable requirements.\30\ If a RMO does not itself conduct a retail 
business but routes Retail Orders on behalf of another broker-dealer, 
the RMO's supervisory procedures must be reasonably designed to assure 
that the orders it receives from the other broker-dealer that are 
designated as Retail Orders meets the definition of a Retail Order.\31\ 
In these cases, the RMO must (i) obtain an annual written 
representation, in a form acceptable to the Exchange, from each other 
broker-dealer that sends the RMO orders to be designated as Retail 
Orders that the entry of such orders as Retail Orders will be in 
compliance with the requirements of this Rule; and (ii) monitor whether 
Retail Order flow routed on behalf of other such broker-dealers meets 
the applicable requirements.\32\ Importantly, the Exchange's regulatory 
and surveillance functions provide appropriate oversight by the 
Exchange by monitoring for continued compliance with the terms of these 
provisions. If a RMO fails to abide by the Retail Order requirements, 
the Exchange in its sole discretion may disqualify a Member from its 
status as a RMO.\33\
---------------------------------------------------------------------------

    \29\ See Rule 11.21(b)(6).
    \30\ Id.
    \31\ Id.
    \32\ Id.
    \33\ See Rule 1121(b)(d)(1). [sic].
---------------------------------------------------------------------------

    Rule 11.9 Interpretation and Policy .01 also provides additional 
protections designed to ensure that that only bona fide retail orders 
participate in the Exchange's Retail Priority program. Specifically, 
Interpretation and Policy .01 defines a Retail Priority Order as a 
Retail Order (as defined in Rule 11.21(a)(2)) that is entered on behalf 
of a person that does not place more than 390 equity orders per day on 
average during a calendar month for its own beneficial account(s). 
Retail Orders for any retail customer that had an average of more than 
390 orders per day during any month of a calendar quarter are not 
eligible to be entered as Retail Priority for the next calendar 
quarter.
    In addition, Interpretation and Policiy .02 requires RMOs that 
enter Retail Priority Orders to have reasonable policies and procedures 
in place to ensure that such orders are appropriately represented on 
the Exchange. These policies and procedures should provide for a review 
of retail customers' activity on at least a quarterly basis. RMOs are 
required to conduct a quarterly review and make any appropriate changes 
to the way in which they are representing orders within five business 
days after the end of each calendar quarter. Moreover, if during a 
quarter the Exchange identifies a retail customer for which orders are 
being represented as Retail Priority Orders but that has averaged more 
than 390 orders per day during a month, the Exchange will notify the 
RMO, and the RMO will be required to change the manner in which it is 
representing the retail customer's orders within five business days.
    Overall, the Exchange believes it has in place an effective 
framework for ensuring that only bona fide retail orders are designated 
as Retail Orders by RMOs, and notes that the proposed amendments will 
only seek to enhance Members' understanding of Exchange rules regarding 
Retail Orders, as well as augment the Exchange's ability to enforce its 
rules related to Retail Orders. Therefore, while the proposed 
amendments may broaden the spectrum of retail investors whose orders 
are eligible to be routed to the Exchange by RMOs, the enhanced clarity 
of these rules will help to enable Members to make routing decisions in 
compliance with applicable Exchange rules. In this regard, the Exchange 
believes it important to note that as Members of the Exchange, RMOs 
must be registered brokers or dealers. As registered brokers or 
dealers, RMOs are subject to a panoply of rules, such as FINRA Rule 
2010 (Standards of Commercial Honor and Principles of Trade), EDGX Rule 
2.2. (Obligation of Members and the Exchange), and EDGX Rule 3.1 
(Business Conduct of Members). These rules require, amongst other 
things, that as brokers or dealers, Members are required to conduct 
business with the highest standards of commercial honor, and obligate 
Members to comply with all Exchange rules, by-laws, and 
regulations.\34\ While the Exchange has

[[Page 10135]]

an obligation to maintain fair and orderly markets and carry out it its 
duties as a self-regulatory organization, RMOs are also obligated to 
ensure that only orders that comply with Exchange rules are routed to 
the Exchange and designated as Retail Orders.
---------------------------------------------------------------------------

    \34\ While the RMO application process discussed above does rely 
on information provided by the applicant, the Exchange believes that 
ultimately it must be allowed to rely on representations made by 
registered brokers or dealers that are obligated to conduct their 
securities business consistent with the highest standards of 
commercial honor, and in submitting their application, have attested 
to the accuracy of the information provided to the Exchange.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed amendments will 
provide the Exchange's regulatory and surveillance functions with a 
rule set that is more aligned with today's retail order routing 
practices. With the prevalent use of algorithms in today's equity 
markets, more descriptive rule text will aid the Exchange's business 
associates in properly guiding its Members through the RMO process, as 
well as further strengthen the regulatory and surveillance function's 
ability to enforce Exchange rules.
2. Statutory Basis
    The Exchange believes the proposed rule changes are consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\35\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \36\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \37\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
    \37\ Id.
---------------------------------------------------------------------------

Retail Order Definition
    The Exchange believes that the proposed rule change is consistent 
with these principles because it would increase competition among 
execution venues, encourage additional on-exchange retail liquidity, 
and offer retail investors the opportunity to receive orderbook 
priority ahead of all other interest on the EDGX Book. The Exchange 
notes that a significant percentage of the orders of individual 
investors are executed over the counter,\38\ and that by amending the 
definition of Retail Order more retail flow may be directed to the 
Exchange and have the opportunity to execute on a regulated, 
transparent market. Indeed, even the Commission has noted that ``a very 
large percentage of marketable (immediately executable) order flow of 
individual investors is `executed' or `internalized' by broker-dealers 
in the [over-the-counter-markets].'' \39\ The Commission has also noted 
that a review of the order flow of eight retail brokers revealed that 
nearly 100% of their customer market orders were routed to over-the-
counter market makers, often pursuant to payment for order flow 
arrangements.\40\ By helping to incentivize RMOs to send Retail Orders 
to the Exchange, RMOs will have another alternative to over-the-counter 
market makers, and will receive beneficial retail-only Exchange 
pricing. In turn, an increase in the number of Retail Orders submitted 
onto the Exchange will encourage more retail liquidity provision, 
thereby deepening EDGX's retail liquidity pool, fostering enhanced 
price discovery, and offering Retail Orders more price improvement 
opportunities as liquidity providers compete to trade with Retail 
Orders increases.
---------------------------------------------------------------------------

    \38\ Ninety-plus percent (90%) of retail marketable orders are 
routed to wholesalers and executed off-exchange. See Chair Gensler's 
remarks, ``Market Structure and the Retail Investors: Remarks Before 
the Piper Sandler Global Exchange Conference'', (June 2, 2022), 
available at: https://www.sec.gov/news/speech/gensler-remarks-piper-sandler-global-exchange-conference-060822).
    \39\ See Securities Exchange Act Release No. 61358 (January 14, 
2010), 75 FR 3594, 3600 (January 21, 2010) (``Concept Release on 
Equity Market Structure'').
    \40\ Id.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed amendment to the 
definition of ``Retail Order'' promotes just and equitable principles 
of trade and is not unfairly discriminatory. While the proposed 
amendment treats Retail Orders differently than non-retail orders, the 
Exchange believes that such a distinction does not constitute unfair 
discrimination, and in fact benefits both liquidity providers and 
retail investors alike. As noted by the Commission in its order 
approving the BYX RPI program,\41\ the markets already distinguish 
between retail investors, whose orders are considered desirable by 
liquidity providers because retail investors are presumed to be, on 
average, less informed about short-term price movements, and 
professional traders, whose orders are presumed, on average, to be more 
informed about short-term price movements.\42\ Because of this 
distinction, the Commission noted that liquidity providers prefer to 
provide price improvement opportunities to less informed retail orders 
than to informed professional orders, and that absent price improvement 
opportunities, retail investors are likely to encounter wider spreads 
which are a consequence of their interaction with more informed order 
flow.\43\ The Exchange believes that in clarifying the definition of 
Retail Order, RMOs will be more encouraged to enter orders onto the 
Exchange, which in turn may attract retail liquidity, benefitting both 
the retail investing community and professional traders.
---------------------------------------------------------------------------

    \41\ Supra note 9.
    \42\ Id.
    \43\ Id.
---------------------------------------------------------------------------

    The proposed amendment to the definition of Retail Order is also 
designed to protect investors and the public interest. In conjunction 
with proposed Interpretations and Policies .01-.04, the Exchange seeks 
to clarify precisely how Retail Orders may be entered onto the Exchange 
by RMOs through the use of algorithms. This clarity is designed to not 
only encourage Members to submit Retail Orders onto the Exchange, but 
to ensure that only bona fide retail orders are able to take advantage 
of the benefits provided to Retail Orders by the Exchange.
Proposed Interpretation and Policy .01
    Proposed Interpretation and Policy .01 is designed to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. By providing additional guidance to market 
participants about what is meant by the term ``retail investor'', the 
Exchange is helping to ensure that only bona fide retail activity is 
entered onto the Exchange, and that professional investors cannot 
somehow avail themselves of the benefits offered to Retail Orders by 
the Exchange.
    The proposed clarification may also provide Members, and potential 
new Members, with the necessary assurances that they are in fact 
managing retail order flow, encouraging them to enter their Retail 
Orders onto the Exchange as RMOs. Increased RMO participation may in 
turn foster more retail liquidity provision as more sophisticated order 
flow seeks to trade with retail flow. The

[[Page 10136]]

increase in liquidity provision and RMO provision will likely lead to 
deeper liquidity on the Exchange that will help to enhance price 
discovery and increased price improvement opportunities for not only 
retail investors, but all investors submitting order flow to the 
Exchange. Additionally, by routing Retail Orders to the Exchange, RMOs 
and their retail investors will benefit from the Exchange's retail-only 
pricing incentives, as well as increased price improvement 
opportunities and enhanced order priority offered by EDGX's Retail 
Priority program.
Proposed Interpretation and Policy .02
    Proposed Interpretation and Policy .02 is designed to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. By providing additional guidance around the term 
``natural person'', it will be clearer to Members that an order, or 
investment criteria for an order, must be entered by a human and cannot 
originate from an algorithm without human intervention. This will help 
to ensure that only bona fide retail orders are designated as ``Retail 
Orders'' and mitigate the likelihood that professional investors that 
utilize fully automated trading technology designed to participate in 
certain trading strategies inappropriately seek to designate their 
orders as Retail Orders.
    Furthermore, by clarifying that orders created through broker-
dealers' robo-advisory programs can qualify as Retail Orders if the 
investment criteria are entered by a natural person, additional order 
flow from robo-advisory program may be directed to the Exchange for 
execution. Similarly, by making clear that a ``natural person'' may 
also be an account held in corporate form, such as an individual 
retirement account or limited liability corporation (e.g., family 
office), more retail flow may be directed to the Exchange. By executing 
on the Exchange RMOs will be able to avail themselves of retail-
specific pricing, which they can pass onto their retail clients in the 
form of reduced commissions and transaction costs. Additionally, these 
orders will have the opportunity to participate in the Exchange's 
Retail Priority program, which focuses on improving execution quality 
and trading outcomes for individual investors, and the firms 
facilitating their orders, by reducing their time to execution.
    Finally, as noted throughout, increased retail flow will augment 
the Exchange's liquidity pools, thereby fostering price discovery, and 
creating more opportunities for price improvement. With improved on-
execution experiences more investors may be incentivized to route their 
retails orders on-exchange (i.e., EDGX) exposing retail flow to on-
exchange price competition.
Proposed Interpretation and Policy .03
    Proposed Interpretation and Policy .03 is designed to protect 
investors and the markets by making clear to RMOs using algorithms to 
enter Retail Orders onto the Exchange that orders must be entered by a 
retail investor or a natural person on behalf of a retail investor, and 
that in the case of robo-advisory solutions, the retail investor must 
enter the investment criteria that the brokerage firm's algorithm uses 
to generate orders. By providing examples of both acceptable and 
unacceptable uses of algorithms, market participants will be clearer as 
to whether the orders they route to the Exchange for execution are 
indeed ``Retail Orders''. In doing so, the Exchange is helping to 
ensure that only bona fide retail orders qualify as Retail Orders, and 
that professional investors are not inappropriately receiving benefits 
specifically reserved for retail investors.
    Proposed Interpretation and Policy .03 will also help to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. By providing additional guidance on how RMOs 
may use algorithms when submitting Retail Orders to the Exchange, 
Members will be more certain as to whether their orders in fact qualify 
as Retail Orders. In doing so, RMOs may route more Retail Orders to the 
Exchange and in turn, may encourage more market participants to provide 
additional retail liquidity thereby deepening the liquidity pool, and 
enhancing price discovery and transparency. As more investors are 
incentivized to execute their retail flow on the Exchange an increasing 
number of individual investors' orders will be exposed to on-exchange 
price competition, increasing their opportunity to receive price 
improvement and improved execution quality.
Interpretation and Policy .04
    Interpretation and Policy .04 helps to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system. The provision preventing the changing of the price or side of 
an order in both the current and proposed definition of Retail Order 
was designed to ensure that orders entered onto the Exchange by RMOs 
were submitted on behalf of retail investors, and not institutional 
orders which typically have the terms of price and size amended, 
canceled, or replaced frequently throughout the day. However, the 
Exchange recognizes that RMOs may sometimes receive unpriced orders 
from their retail customers or may deem a certain limit price to be 
appropriate for the purposes of seeking a better execution and/or 
preventing an order from executing at undesirable price levels. As 
such, by clarifying that Retail Orders may in fact be amended provided 
it is to affect a better execution experience for the retail investor, 
or to manage market impact, RMOs may be more encouraged to send more 
Retail Orders to the Exchange. As noted throughout, increased RMO 
activity and retail liquidity provision will only serve to deepen 
liquidity for Retail Orders, which in turn will lead to price 
competition and increased price improvement opportunities for 
individual investors' orders.
    The Exchange also believes that proposed Interpretations and 
Policies .01-.04 promote just and equitable principles of trade and are 
not unfairly discriminatory because they are intended to provide 
guidance to all Members, in particular RMOs, as to what constitutes a 
Retail Order.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes its 
proposed amendment to the definition of Retail Order and codification 
of Interpretation and Policies .01-.04 will benefit intramarket 
competition rather than burden competition. The proposed changes serve 
to provide additional clarity to Members and RMOs as to the types of 
persons or accounts eligible to submit Retail Orders and describe the 
permissible and impermissible uses of algorithms available to Members 
and RMOs when submitting Retail Orders. The Exchange believes this 
additional information will lead to additional retail order flow being 
submitted to the Exchange by RMOs, which all contra-side orders are 
eligible to interact with. Greater overall order flow and trading 
opportunities benefits all market participants on the Exchange. An 
increase in RMO activity and liquidity providing orders will serve to 
enhance the Exchange's available liquidity. Deeper liquidity pools 
will, in turn, enhance price discovery, as well as

[[Page 10137]]

price improvement opportunities for retail investors as liquidity 
providers compete for retail executions. Liquidity providers also 
benefit by being able to interact with retail order flow that is often 
executed off-exchange, and therefore generally inaccessible to those 
trading in the lit markets.
    While the proposed definition will help to ensure that only bona 
fide retail investors receive the benefits of afforded to Retail 
Orders, prioritization of retail investors is not a novel concept in 
the securities market. In this regard, the proposed amendments should 
not result in any new or novel issues to be considered by the 
Commission, or that have not already been contemplated by today's 
market participants. Indeed, as noted in the Amendment 1 of the 
Exchange's Retail Priority filing,\44\ customer priority has a long 
tradition in the options market where orders entered on behalf of non-
broker dealer public customers have historically been afforded priority 
over orders submitted by registered broker dealers. In fact, most 
options exchanges, including the Exchange's equity options 
platform,\45\ employ a customer priority execution algorithm where 
orders submitted by a subset of public customer with more limited 
trading activity are provided order book priority ahead of orders 
submitted by broker-dealers or other market professionals at the same 
price.
---------------------------------------------------------------------------

    \44\ See Securities Exchange Act Release No. 86280 (July 2, 
2019), 84 FR 32808 (July 9, 2019) (``Notice of Amendment No. 1'').
    \45\ See EDGX Rule 21.8(d)(1).
---------------------------------------------------------------------------

    The Exchange further believes that the proposed rule change will 
increase intermarket competition by enabling the Exchange to better 
compete with other exchanges and off-exchange trading venues for retail 
order flow. The Commission has spoken about ``increasing competition 
and enhancing the direct exposure of individual investor orders to a 
broader spectrum of market participants'' \46\ and the Exchange 
believes its proposed amendments to the definition of Retail Order and 
introduction of Interpretations and Policies .01-.04 provide sufficient 
guidance to RMOs to encourage additional retail order flow be sent to 
the Exchange. In turn, retail investors will have additional 
opportunities to receive executions on a transparent, regulated, 
national securities exchange in addition to the currently available 
off-exchange trading venues. Additionally, a revised definition of 
Retail Order may encourage additional competition for retail order flow 
on-exchange that would be eligible to participate in the various retail 
liquidity programs offered by exchanges,\47\ including the Exchange's 
Retail Priority program. This, in turn, could create additional 
incentives for regulated exchanges to develop additional liquidity 
programs designed at providing additional benefits to retail investors, 
thus promoting additional intermarket competition.
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 96495 (December 14, 
2022), 88 FR 128 (January 3, 2023) (``Order Competition Rule'') at 
178.
    \47\ See also, Cboe BYX Exchange Retail Price Improvement 
(https://www.cboe.com/us/equities/trading/offerings/retail_price_improvement/); Nasdaq retail services (https://www.nasdaqtrader.com/content/productsservices/Trading/EquitiesRetailOfferingOverview.pdf); NYSE and NYSE National Retail 
Liquidity (https://www.nyse.com/markets/liquidity-programs); IEX 
Retail Program (https://www.iexexchange.io/products/retail-program).
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9"><span class="__cf_email__" data-cfemail="b4c6c1d8d199d7dbd9d9d1dac0c7f4c7d1d79ad3dbc2">[email protected]</span></a>. Please include 
file number SR-CboeEDGX-2024-009 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeEDGX-2024-009. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeEDGX-2024-009 and should 
be submitted on or before March 5, 2024.
---------------------------------------------------------------------------

    \48\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02859 Filed 2-12-24; 8:45 am]
BILLING CODE 8011-01-P


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